ECONOMY

VAT changes in food might lead to shifts in consumption habits

vat-changes-in-food-might-lead-to-shifts-in-consumption-habits

Households are in for a shock regarding the effect that the changes in the value-added tax rates will have on their day-to-day spending on food, even though the top rate of 23 percent will cover fewer food categories than was originally planned.

According to calculations by the Research Institute of Retail Consumer Goods (IELKA), the total burden on households from the VAT hikes on a series of food commodities will come to 650 million euros per year, or an annual 157 euros per household. This is based on 2013 consumption patterns, when food retail turnover amounted to 19.5 billion euros and average monthly expenditure came to 390 euros per household.

The estimated monthly increase of 13.50 euros per household, or 3.5 percent, in spending on food may seem insignificant to some, but given the financial conditions and the drastic cut in disposable incomes it is far from negligible. For instance, 13.50 euros can buy three 200-gram jars of instant coffee, 13 1-euro chocolate bars or seven 500-gram bags of rice – products that will enter the 23 percent VAT bracket from the current 13 percent.

IELKA has found that the value of the food products in the top VAT bracket of 23 percent will represent 43 percent of the total value of the food purchases Greek households make. The remaining 57 percent will stay in the 13 percent bracket. The latter include fresh or frozen meat, fish and seafood, milk, yogurt (without added sugar, flavorings or fruit), cheese (not grated), eggs, honey, fruit, vegetables, cereal, olive oil, sugar, baby food, pasta, bread, still water, vinegar and salt.

Retailers estimate that the VAT rate modifications could generate significant changes in shopping habits, shifting consumption from one product category to another, for instance in yogurt.